Okay, here is the situation. Thanks in advance for any help.
Client received an IRS notice saying they owe an additional tax of $2913 for an Americorps scholarship of $9450, for which a 1099 was issued. The $9450 scholarship was in box 3 (other income) of the
1099. The client never actually saw the money, it went straight to their graduate school bursar and was applied to their tuition bill.The IRS website specifically states that this income is taxable and must be entered on line 21 of the Form 1040 and I understand that. The client is already deducting $1570 of additional tuition they paid on line 34 of the Form 1040. I am wondering if, because it is 1099 income, we can respond to the notice with a Schedule C prepared, that shows $9450 in income, and $9450 of tuition deducted, and also amend the Form 1040 to take out the $1570 tuition so there is no double- dipping of any kind. This will raise their total taxable income by $1570, which will result in an increase to their tax but it will be less than the notice amount. Can we do this?
Thanks again.
Chris A Johnson, EA